Paying for Car Repairs after an Accident

So you’ve been in an accident and you call up your car insurance agent. A claims adjustor comes out and looks at your car. Then the estimate from the repair shop comes in. Who pays the bill – you or your car insurance carrier?

The answer is, it depends. Your car insurance policy has a deductible, the amount you have to pay before the insurance covers anything. If the repair bill comes in under that amount, you will have to pay the bill yourself. If the repair estimate is more than that amount, you’ll get some help with the repair bills, but you will still have to meet your deductible.

There are several ways to cover the expenses. We’ll discuss each option.

  • Use the money from your savings account. If you have the money in a savings account, this is the option you should choose. If you have other forms of savings, like 401(k) or 403(b), you should never tap into these accounts to cover the deductible on your car insurance.
  • Put the bill on your credit card. While this is often the first instinctive reaction for many people who are strapped for cash, it’s not usually the best idea. Credit cards come with high interest rates, and it could take you a long time to pay off the balance. You should choose this only if you don’t have any other options.
  • Take out a small personal loan. While financing the cost of repairing your car isn’t the best plan, you probably can’t afford to be without transportation. Taking out a personal loan from a bank or credit union will usually give you better rates than if you paid using a credit card. You will have to pay back the loan in monthly installments, and you will still pay some interest (interest rates typically depend on your credit rating and the lender’s policies). Once the loan is paid off, continue paying that money each month – but pay it to yourself. Build up enough savings so that you won’t get caught in this situation again.
  • Borrow money from a friend or family member if you have to. Remember that it’s not a gift. You have to pay the money back or you could lose that relationship.
  • Don’t use payday loans or other forms of predatory lending to pay off your deductible. These schemes will trap you in a cycle of debt, and the interest rates make it nearly impossible for most people to pay them off.

We recommend always keeping enough money in savings to cover the cost of your car insurance deductible. If you’re smart, you can put a little extra away and then increase the deductible on your policy. Usually this results in lower car insurance premiums, which is an excellent way to save money.

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